The economic toll of widespread flu

Blog Post by: Colleen Stoxen

January 21, 2013 - 2:14 PM

By Sharon BegleyReuters

A high body count is not the only meaningful number attached to a pandemic. The potential cost of a global outbreak of the flu or some other highly contagious disease, however ghoulish to calculate, is essential for government officials and business leaders to know. Only by putting a price tag on such an occurrence can they hope to establish what containing it is worth.

The financial damage by itself can be devastating. The expense of major epidemics is evident every time a health agency totes up the cost of treating infected people — the outlays for drugs, doctors' visits, and hospitalizations. But that spending is only the most obvious economic impact of an outbreak.

Consider the effect on international airlines. During the 2003 SARS (severe acute respiratory syndrome), which began in southern China and lasted about seven months, business and leisure travelers drastically cut back on flying. Asia-Pacific carriers saw revenue plunge $6 billion and North American airlines lost another $1 billion.

The tourism industry also took a beating. The net revenue of Park Place Entertainment, owner of Caesar's Palace in Las Vegas and other gambling and hotel complexes, plunged more than 50 percent in the second quarter of 2003 compared with the year before, mainly because Asian high rollers hunkered down rather than risk infection while traveling.

Fear even hurt businesses dependent on sales calls. AIG, which pulled almost 30 percent of its revenue from Asia back then, was hobbled when the epidemic kept its agents from visiting potential customers.

That's just the easily measured stuff; the indirect costs pushed the total SARS bill much higher. "The biggest driver of the economics of pandemics is not mortality or morbidity but risk aversion, as people change their behavior to reduce their chance of exposure," says Dr. Dennis Carroll, director of the U.S. Agency for International Development's programs on new and emerging disease threats. "People don't go to their jobs, and they don't go to shopping malls. There can be a huge decrease in consumer demand, and if (a pandemic) continues long enough, it can affect manufacturing" as producers cut output to align supply with lower demand. If schools are closed, healthy workers may have to stay home with their children. People afraid of becoming infected are less likely to go out to stores, restaurants or movies.